Should I itemize, and fill out Schedule A, or should I just claim the standard deduction?” This is a question as old as time, well not really, but it sure seems that way. However, after the passage of the Tax Cuts and Jobs Act of 2017, there has been some major changes to Schedule A. As I am sure everyone knows, the most important change for most people was the fact that the standard deduction was increased from $6,500 to $12,000 for single files and $13,000 to $24,000 for taxpayers who are married and filing jointly. This means that a lot less people are going to be itemizing. For example, according to a statistical analysis done by the Tax Foundation, the amount of people that itemized, decreased from 46.5 million taxpayers in 2017 to only 18 million taxpayers in 2018. This means that almost 90% of tax payers don’t itemize their deductions.
So with those stats in mind, the question remains “why should I care about itemizing?” Well for one, if done right and understood correctly, filling out Schedule A and itemizing can save you a lot of money come tax time and could result in deductions that far exceed the standard deduction. Which for the 2020 tax year will be $12,400 for single filers and $24,800 for married and filing jointly, filers.
For those over 65, medical expenses are one of the most common expenses to “itemize” for. In 2016 it was found that people over the age of 65 spend, on average, $11,316 a year on medical expenses. But be aware, you can only deduct medical expenses that exceed 7.5% of your adjusted gross income (line 11 on your 1040). Meaning that if you had an adjusted gross income of $100,000 and you had $11,000 in medical expenses, you would be able to itemize $3,500 of those medical expenses. Also keep in mind that what your and the IRS’s definition of “qualified medical and dental expenses” are, may not align.
Some of the items that you are able to itemize for, include:
Some of the items that you are not able to itemize for include:
Well as much as you would like to claim your neighbor, who sprained his ankle walking on the sidewalk, you can’t. As you would expect, the people that you can claim would be you, yourself and dependents that you claim on your tax return. However, please note that dependents that make over $4,300 a year, are not eligible to have their medical expenses claimed on your return. Also for situations that arise for non dependents, for example you have a child who is over the age of 26 but you still pay for their insurance for whatever reason, you can deduct for your premium and the premiums of any dependents but you can’t deduct for the non dependent’s share of the insurance premiums.
In conclusion for most people, the standard deduction will be preferable to itemizing, because they don’t have that much to itemize for. However, for people with more complicated tax situations, itemizing is vastly preferable to taking the standard deduction. For those over the age of 65, the amount of medical expenses increases and in most cases income decreases as people start retiring. This means that the opportunity to deduct for medical and dental expenses increases, because of the decreasing AGI. With that said, with enough understanding of how itemizing and Schedule A works, you can ask more pertinent questions and you and a qualified CPA, can maximize your deductions and save you more money on your taxes.
